Los Angeles voters weigh sales tax increase

With the threat of police layoffs hanging over their heads, Los Angeles voters will decide Tuesday whether to approve a half-percent sales tax increase that city officials say they need to get out of a fiscal hole and preserve critical services.

Proposition A would raise the city's sales tax to 9.5 percent - one of the highest in the state - starting in July.

The initiative is expected to raise about $100 million in its first year and about $200 million annually after that. The latter amount equals the city's current deficit in its overall $7 billion budget.

That 0.5 percent hike would cost the average consumer about $35 to $110 a year, according to an independent study cited by city budget chief Miguel Santana.

He said the analysis by Beacon Economics concluded the initiative would not significantly hamper sales or sabotage the city's economic recovery.

"I think the question is: Are people satisfied with the quality of services they have now?" Santana said.

"Unfortunately, without this new revenue, our ability to even maintain the limited services we offer in terms of streets, parks, animal services, public safety - all of those are in further jeopardy without the new revenue."

But the proposed increase doesn't sit well with mom-and-pop store owners, who have been hurt by a slow recovery from the recession and a 0.25 percent statewide sales tax increase that took effect in January.

"Whoa!" was the reaction from Adrianna Cruz-Ocampo, owner of U-Frame It Gallery in Van Nuys.

"Our business is hurting in this economy as it is," Cruz-Ocampo said. "If the sales tax goes up further, potential customers would probably go to places that don't charge that much, or shop on the Internet."

Chief Charlie Beck has warned that the Los Angeles Police Department could lose about 500 officers - 200 of them through layoffs - if the initiative fails.

The region's real estate industry is helping bankroll the campaign for Proposition A. In a way, the initiative was its doing.

LA officials had initially thought of boosting the city's sagging bottom line with a tax on real estate sales. Lobbyists for the real estate industry, however, persuaded them to drop the idea after presenting polls that showed a sales tax hike was more likely to win voter approval, besides raising twice as much revenue.

About $1 million has been raised for the pro-Prop. A campaign, with much of it coming from real estate interests, as well as billboard companies and city unions. Little has been raised in opposition.

Not all business groups endorse the ballot measure, however, and all of the mayoral candidates have come out against it.

Stuart Waldman, president of the Valley Industry and Commerce Association, said the city should have done more belt-tightening before asking voters for a bailout.

"The city is mismanaging its budget," he said. "By passing a sales tax increase, we will be rewarding bad behavior."

Waldman said the city should have considered other cost-cutting, revenue-generating options like privatizing its zoo, convention center and parking structures.

"Before we ask the taxpayers to spend a penny more, I need to know that the City Council has done everything in its power to cut costs," she said.

Councilman Eric Garcetti, another mayoral candidate, worried the initiative would drive shoppers to buy big-ticket items outside LA, but he rejected claims the city failed to keep spending under control.

"The city's budget gap was once projected to be $1.1 billion (by the time the new mayor assumes office) but it's now been reduced to about $100 million," he said.

If a simple majority of voters approve Measure A, the 9.5 percent sales tax in LA would match that of Santa Monica.

Burbank and Glendale, in comparison, have only 9 percent, while cities in Ventura County have 7.5 percent.

The ballot measure comes soon after voters approved Gov. Jerry Brown's Proposition 30, which raised personal income taxes on the wealthy and pushed LA's sales tax up from 8.75 percent to 9 percent, starting in January.

The bulk of the sales tax however, does not go to the city but to the state, schools and transportation agencies. Santana said the city's share is only 1 percentage point. Proposition A would make that 1.5 percent.

The city of Los Angeles is one of the highest taxed of the major U.S. cities, according to a study produced by the municipal government of the District of Columbia.

The study pegged L.A. as the fifth most taxed city in 2011, behind Bridgeport, Conn., Newark, N.J., Philadelphia, and Columbus.

It found that a hypothetical family of three in Los Angeles making $50,000 had to pay about $6,635 in taxes, or more than 13 percent of their annual income. Of that amount, $5,100 was property tax, $1,000 was sales tax, and about $535 was auto tax.

Kris Vosburgh, executive director of the Howard Jarvis Taxpayers Association, said putting Measure A on the ballot is "just proof that those at City Hall think the rest of us are stupid."

"We already pay the second highest utility user tax in the state, when some cities have no utility user tax at all," he complained. "Our business taxes are high. Our parking taxes - that's really what those tickets are - it's through the roof."

Vosburgh said people are still reeling from the tax increases that came as a result of the fiscal cliff deal and the federal Affordable Care Act.

"The City Council and mayor are showing no concern for the welfare of average working folks who are really struggling in this community," Vosburgh added.

Tom Hogen-Esch, a political science professor at Cal State Northridge, said the tax burden in LA is not as heavy as Vosburgh claims.

"Those groups typically cite evidence that supports their position so they forget that people in LA pay the lowest property tax as a percentage of the value of the property anywhere in the country," said Hogen-Esch, who has not taken a position on Prop. A. "Also, cities in California don't charge income tax, unlike cities in other parts of the country."

"I suspect when you look at the totality of the taxes around the country, we're probably somewhere in the middle," he said.

City Councilman Paul Koretz said the city has "exhausted its options" after eliminating 5,000 positions and making other drastic reductions in spending.

"We cut the City Attorney's Office so deeply they're hanging by a thread," he said. "We cut the Fire Department too deeply and I think our response times have slowed as a result."

"We're at the point where there's nothing else we can cut that won't be somewhat devastating to the city," he concluded.

Fernando Guerra, director of the Leavey Center for the Study of Los Angeles at Loyola Marymount University, also downplayed the impact a half-percent sales tax would have on the average consumer.

"There's no doubt voters can absorb it, but do they want to?" Guerra asked.

He said voters in LA have shown they are willing to absorb a tax increase - as long as they know where their money is going.

He noted they supported Proposition 30 to fund schools, and came within a hair last year of approving the county's Measure J, which would have extended a half-percent sales tax for transportation projects by 30 years.

Even more tax increases may be on the horizon, as some council members have suggested a bond measure to erase a 60-year backlog in street repairs. The proposal, shelved for now, could add about $24 to the average home's annual property tax bill.

And then there's the Clean Water, Clean Beaches Fee - which critics consider a parcel tax - that would cost property owners an average of $54 a year to pay for projects that would collect and clean polluted rainwater so it can be reused instead of wasted, avoiding the massive expense of buying water outside of LA. The county Board of Supervisors has scheduled a hearing on the fee March 12, and could decide to put it on a mail-in ballot.

With a Democratic supermajority in the state Legislature for the first time in decades, there has also been talk of making changes to Proposition 13, which significantly lowered property taxes and required a two-thirds majority vote for tax increases.

"In survey after survey, voters in LA are more trusting of government, more liberal, more democratic - all of the characteristics that we associate with an electorate that's more willing to be taxed is present in LA," Guerra said.

"For L.A. voters to (reject Proposition A) would be something else, because they are a group of voters that are much more willing to support government than most voters throughout the state and the country - but even they have a limit."